Nearly two decades ago, the public was sold a bill of goods: tort reform. Proponents of tort reform promised that, if implemented, this reform package would lower consumer prices, create a fair system and protect business from lawsuits that were without merit. Everyone – the public, small business and legislators – fell for it.
Today, we have the benefit of hindsight and can clearly see tort reform’s failed promises and an increase in the number of large corporations who routinely practice bad faith and fraud, particularly insurance companies. Tort reform has hurt the public at large and small business in particular since it is the large, multi-billion dollar corporations who are usually the repeat offenders, not hard working entrepreneurs.
The American Insurance Association, an insurance industry trade group composed of major insurers, released a news release dated March 13, 2002, retracting promises made by its membership, its staff and by the American Tort Reform Association years ago when they were lobbying for tort reform. In that release, the American Insurance Association said:
- “Insurers never promised that tort reform would achieve specific savings, but rather focused on the benefits of fairness and predictability.”
Simultaneously, judiciaries and lawmakers made it tougher to prove insurance-committed bad faith and/or fraud. Irrespective of that greater burden of proof, companies resorting to Enronesque operating philosophies are not deterred by the limited penalties imposed by tort reform. Obviously, caps on punitive damages (an element of tort reform) limit a jury’s ability to penalize even the most heinous offense. Now that Corporate Responsibility has become a popular catch phrase used by lawmakers, perhaps it’s time to rethink tort reform and apply a more common sense approach. Give the insurance industry what they want: fairness and predictability and give the public what it wants: lower premiums and fair handling of claims.
Policyholders of America, a national non profit association dedicated to lowering insurance premiums and eradicating bad faith and fraud often practiced by insurance companies in the claims handling process, has stolen and modified a penalty often used by the criminal justice system – Three Strikes; You’re Out. Under the proposed plan, if an insurance company has been found by a jury to have committed fraud and/or bad faith three times, it would be forced to leave the state for a minimum of ten years.
Who benefits? Everyone not guilty of bad faith and fraud wins. Residents of the state benefit because repeat offenders would be forced to leave, sparing other potential victims. Insurers who honor the terms of the policies they sell benefit because these companies would absorb new policies when the perpetrators of bad faith and/or fraud are forced to relinquish their customer base and market share. Repeat offenders would be forced to fly right or pay the consequences and consumer prices would decrease.
Critics of the Policyholders of America Three Strikes; You’re Out proposal claim that if an insurer would be ousted from a state, their policyholders would be left without coverage. Not true. Under the plan, the banned insurer would continue to have liability for the policies until phased out by attrition by way of renewal dates of each outstanding policy. Because renewals are staggered, an orderly transition and market absorption would occur naturally.
One of the most interesting criticisms of the plan came from the lobbyist for Texans for Lawsuit Reform, who helped spearhead tort reform as we know it today. His response to the plan was, “No insurer would commit fraud and/or bad faith three times”.
Exactly. The penalty for doing so is far greater than any punitive damage award ever levied by a jury to date, yet society, as a whole, benefits. This plan weeds out the bad actors, rewards the good ones and reduces consumer prices. Even the Center for Justice & Democracy’s 1999 study “Premium Deceit – the Failure of Tort Reform to Cut Insurance Prices”, an extensive review of premium prices from 1985 – 1999, concludes that tort reform laws enacted since the mid-1980s have not lowered insurance rates in the ensuing years. The study found that states with little or no tort law restrictions experience almost the same changes in insurance rates as states that have enacted severe restrictions on victim’s rights.
If the general public and lawmakers are serious about developing a tort reform package that is guaranteed to succeed in curtailing commonplace practices of insurance bad faith and fraud, lowering consumer prices, and protecting citizens, Policyholders of America’s Three Strikes; You’re Out plan should be put into effect.
The Three Strikes; You’re Out plan is as American as baseball and apple pie. Policyholders of America will be proposing it in the next legislative session in Texas, the state Policyholders of America calls home and where insurance rate hikes, bad faith and fraud are out of control. In a recent Policyholders of America-commissioned poll, 87% of the 3,000 people surveyed supported the plan. This survey was conducted outside of Policyholders of America’s membership base of 18,000+ families.